SOUTH AFRICA  – South Africa’s financial services group, Old Mutual, said it plans to spend up to US$176 million (R2.5bn) on buying back its own shares, which the market currently undervalues.

This comes as an extension of its buyback programme by US$35.2 million (R500m) after saying in March it would spend up to US$140.81 million (R2bn) on repurchases, reports Business Day.

“The Old Mutual board believes that Old Mutual is trading at a discount to its intrinsic value and is of the view that a share repurchase programme will deliver longer-term incremental value to shareholders.”

“The management team remains committed to following a disciplined trading approach under the share repurchase programme and will only repurchase shares to the extent that market conditions are favourable,” the group said. 

The company said the programme will reduce its share capital as the repurchased shares will be cancelled as issued shares.

Old Mutual, headed by Peter Moyo, had cash and cash equivalents of US$2.27 billion (R32.3bn) at the end of December 2018, from US$2.17 billion (R30.8bn) a year before it said in March.

At the time, Old Mutual said it might return more capital to shareholders in the future as it expected further cash inflows from the sale of its Latin American operations, as well as more inter-company dividends.

In the year ended December 2018, the group’s adjusted headline earnings fell 11% to US$809.64 million (R11.5bn), partly due to lower investment income in SA as a result of weaker equity markets.

Last year, the group embarked on a restructuring programme to focus on defending and growing market share in Africa by revamping the company’s digital offerings especially in South Africa.

The group was is also sought to improve cross-selling insurance products into its East African customer base, such as its Kenya-based micro-lender Faulu, according to the company’s prospectus.

Executive directors and prescribed officers at Old Mutual have netted one-off proceeds in excess of US$3.24 million (R46m) as an “unintended consequence” of the managed separation process.

The group says the distributions “include the once-off Quilter and Nedbank distributions (vested immediately) as a result of the Managed Separation to compensate participants for the effect of the unbundling on the value of outstanding awards”.

In effect, executives received immediate settlement of the portion of the incentive shares that were distributed.

The UK wealth business Quilter and Old Mutual’s 32% stake ( worth US$2.73 billion) in Nedbank were unbundled to shareholders on June 26 2018 and October 15 2018 respectively.

The 173 plus-year-old insurer has operations in 13 countries.